<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995
Commission File Number 0-10833
-------------
CLINTON GAS SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-081395
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identificaton No.)
incorporation or organization)
4770 Indianola Avenue Columbus, Ohio 43214
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(614) 888-9588
- --------------------------------------------------------------------------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock - 5,642,143 shares outstanding
$ -0- par value
Page One of Thirteen pages.
--------
Exhibit Index appears on Page 12.
--
<PAGE> 2
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
1995 December 31,
ASSETS: (Unaudited) 1994
- ------------------------------------ --------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,029,000 $1,169,000
Receivables 11,980,000 10,140,000
Prepaid expenses and other 484,000 1,141,000
Deferred income taxes 200,000 486,000
Costs in excess of billings on uncompleted wells 0 301,000
--------------- ---------------
TOTAL CURRENT ASSETS 13,693,000 13,237,000
--------------- ---------------
PROPERTY - At Cost:
Proved natural gas and oil properties 53,993,000 53,000,000
Pipeline systems and other 12,508,000 12,330,000
Land, building and improvements 2,169,000 2,097,000
Well and field equipment 2,736,000 2,722,000
Office equipment 1,983,000 1,850,000
-------------- --------------
Total Property 73,389,000 71,999,000
Accumulated depreciation, depletion
and amortization 40,399,000 37,207,000
-------------- --------------
PROPERTY - NET 32,990,000 34,792,000
-------------- --------------
INVESTMENTS IN REAL ESTATE 612,000 1,590,000
-------------- --------------
OTHER ASSETS 565,000 564,000
-------------- --------------
TOTAL ASSETS $47,860,000 $50,183,000
============== ==============
</TABLE>
Page 2 of 13 pages.
<PAGE> 3
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
1995 December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY: (Unaudited) 1994
- ------------------------------------- ---------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt:
Notes payable $1,950,000 $276,000
Mortgages payable 70,000 106,000
Accounts payable 10,645,000 10,210,000
Accrued liabilities and expenses 1,578,000 1,089,000
Receipts in excess of costs on uncompleted wells 45,000 0
Accrued income taxes 266,000 0
---------------- ---------------
TOTAL CURRENT LIABILITIES 14,554,000 11,681,000
---------------- ---------------
LONG-TERM DEBT (Less current maturities):
Notes payable 8,715,000 15,773,000
Mortgages payable 945,000 1,333,000
---------------- ---------------
TOTAL LONG-TERM DEBT 9,660,000 17,106,000
---------------- ---------------
DEFERRED INCOME TAXES 506,000 506,000
---------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; Authorized -
2,000,000 shares; Issued and oustanding - none.
Common stock, $.0833 stated value; Authorized -
15,000,000 shares; Issued 1995 and 1994 -
6,175,000 shares 514,000 514,000
Additional paid-in capital 7,552,000 7,552,000
Retained earnings 16,265,000 13,949,000
---------------- ---------------
TOTAL 24,331,000 22,015,000
Less treasury stock of 532,000 and
517,000 shares, respectively, at cost (1,191,000) (1,125,000)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 23,140,000 20,890,000
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $47,860,000 $50,183,000
================ ===============
</TABLE>
Page 3 of 13 pages.
<PAGE> 4
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
For the Quarters Ended September 30, 1995 and 1994 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarters Ended September 30,
1995 1994
--------------- ---------------
<S> <C> <C>
REVENUE:
Natural gas marketing $14,546,000 $17,826,000
Natural gas and oil sales 6,919,000 2,934,000
Well operating, transportation and other 595,000 989,000
Drilling 1,075,000 874,000
--------------- ---------------
TOTAL REVENUE 23,135,000 22,623,000
--------------- ---------------
COSTS AND EXPENSES:
Natural gas marketing 13,686,000 17,412,000
Natural gas and oil production:
Depreciation, depletion and amortization 1,016,000 828,000
Production costs 1,133,000 1,139,000
Other costs and expenses 2,009,000 1,098,000
Drilling 1,392,000 1,006,000
Selling, general and administrative expenses 1,060,000 773,000
--------------- ---------------
TOTAL COSTS AND EXPENSES 20,296,000 22,256,000
--------------- ---------------
OPERATING INCOME 2,839,000 367,000
OTHER INCOME (EXPENSE):
Interest expense (349,000) (344,000)
Interest, dividend, and other income 24,000 7,000
--------------- ---------------
INCOME BEFORE INCOME TAXES 2,514,000 30,000
INCOME TAXES (BENEFIT) 575,000 (30,000)
--------------- ---------------
NET INCOME $1,939,000 $60,000
=============== ===============
NET INCOME PER COMMON SHARE $0.343 $0.011
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,651,000 5,658,000
=============== ===============
</TABLE>
Page 4 of 13 pages.
<PAGE> 5
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
For the Nine Months Ended September 30, 1995 and 1994 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
--------------- ---------------
<S> <C> <C>
REVENUE:
Natural gas marketing $44,818,000 $66,516,000
Natural gas and oil sales 13,783,000 8,385,000
Well operating, transportation and other 2,324,000 2,803,000
Drilling 2,467,000 1,842,000
--------------- ---------------
TOTAL REVENUE 63,392,000 79,546,000
--------------- ---------------
COSTS AND EXPENSES:
Natural gas marketing 42,576,000 64,951,000
Natural gas and oil production:
Depreciation, depletion and amortization 3,124,000 2,433,000
Production costs 3,478,000 3,162,000
Other costs and expenses 4,410,000 3,320,000
Drilling 3,212,000 1,981,000
Selling, general and administrative expenses 2,607,000 2,830,000
--------------- ---------------
TOTAL COSTS AND EXPENSES 59,407,000 78,677,000
--------------- ---------------
OPERATING INCOME 3,985,000 869,000
OTHER INCOME (EXPENSE):
Interest expense (1,094,000) (917,000)
Interest, dividend, and other income 49,000 20,000
--------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 2,940,000 (28,000)
INCOME TAXES (BENEFIT) 624,000 (145,000)
--------------- ---------------
NET INCOME $2,316,000 $117,000
=============== ===============
NET INCOME PER COMMON SHARE $0.410 $0.021
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,655,000 5,658,000
=============== ===============
</TABLE>
Page 5 of 13 pages.
<PAGE> 6
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1995 and 1994 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
OPERATING ACTIVITIES 1995 1994
- ---------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Net income (loss) $2,316,000 $117,000
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation, depletion, and amortization 4,152,000 3,167,000
Provision (benefit) for deferred income taxes 286,000 (217,000)
Loss from disposition of property and investments 207,000 7,000
Change in operating assets and liabilities:
(Increase) decrease in receivables (1,840,000) 4,178,000
Decrease (increase) in prepaid expenses and other current assets 657,000 (464,000)
Decrease in costs in excess of billings on uncompleted wells 301,000 0
Increase (decrease) in accounts payable 1,058,000 (3,450,000)
Increase in accrued liabilities and expenses 489,000 66,000
Increase (decrease) in receipts in excess of costs on uncompleted wells 45,000 (474,000)
Increase (decrease) in accrued and deferred income taxes 266,000 (57,000)
Increase in deferred income 0 17,000
-------------- --------------
Net cash provided by operating activities 7,937,000 2,890,000
-------------- --------------
INVESTING ACTIVITIES
- ----------------------------------------------------------------------
Purchase of property (3,152,000) (2,850,000)
Proceeds from sale of property 1,054,000 135,000
Changes in other assets (25,000) (11,000)
-------------- --------------
Net cash (used in) investing activities (2,123,000) (2,726,000)
-------------- --------------
FINANCING ACTIVITIES
- ----------------------------------------------------------------------
Proceeds from notes and mortgages payable 10,215,000 15,400,000
Principal payments on notes and mortgages payable (16,102,000) (15,804,000)
Purchase of Treasury Stock (67,000) 0
-------------- --------------
Net cash (used in) financing activities (5,954,000) (404,000)
-------------- --------------
(Decrease) in cash and cash equivalents (140,000) (240,000)
Cash and cash equivalents at beginning of year 1,169,000 1,103,000
-------------- --------------
Cash and cash equivalents at end of period $1,029,000 $863,000
============== ==============
</TABLE>
Page 6 of 13 pages.
<PAGE> 7
CLINTON GAS SYSTEMS, INC. AND SUBSIDIARIES
- ------------------------------------------
SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------
ACCOUNTING POLICIES : The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be "cash equivalents."
NON-CASH INVESTING AND FINANCING ACTIVITIES : The Company incurred capital
lease and other obligations of $80,000 and $150,000, respectively, for the nine
months ended September 30, 1995 and 1994 in connection with agreements to
purchase equipment. Included in accounts payable at December 31, 1994 is an
unpaid liability of $623,000 to purchase natural gas and oil properties.
INTEREST EXPENSE : The Company incurred interest expense and made interest
payments as follows:
<TABLE>
<CAPTION>
Total Interest Total Interest
Period Expense Incurred Payments Made
---------------- ---------------- -------------
<S> <C> <C>
Nine months ended
September 30, 1995 $1,114,000 $915,000
Nine months ended
September 30, 1994 $936,000 $826,000
</TABLE>
INCOME TAXES : The Company made income tax payments of $0 and $135,000,
respectively, for the nine months ended September 30, 1995 and 1994.
Page 7 of 13 pages.
<PAGE> 8
CLINTON GAS SYSTEMS, INC. AND SUBSIDIARIES
- ------------------------------------------
Notes to Interim Financial Statements
1.) In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
necessary to present fairly Clinton Gas Systems, Inc.'s financial
position as of September 30, 1995, and the results of its operations
and changes in cash flow for the nine months then ended.
2.) The results of operations for the nine months ended September 30,
1995 are not necessarily indicative of the results to be expected for
the full year.
Page 8 of 13 pages.
<PAGE> 9
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
In the third quarter of 1995 the Company received $4,186,000 from the
sale of its producer's contract rejection claim in the bankruptcy of Columbia
Gas Transmission Corp. ("Columbia"). The proceeds were used to reduce the
Company's bank debt. The Company has additional claims in the bankruptcy which
were not sold. The total of the additional claims is approximately 10% to 12%
of the claims that were sold. If the Plan of Reorganization of Columbia is
approved by creditors and confirmed by the Bankruptcy Court, the payment for
these claims should occur late in 1995 or in the first quarter of 1996.
During 1995 the Company has participated in the successful completion
of 29 exploratory wells. The wells are in projects sponsored by the Company or
outside industry partners. The reserves from the exploratory discoveries
combined with reserve acquisitions will provide liquidity to the Company from
the future sale of natural gas and oil production.
The Company's bank credit facility and cash flow from operations are
the major sources of funds to meet its financing requirements. The net cash
provided by operating activities was $7,937,000 for the nine months ended June
30, 1995 compared to $2,890,000 for the 1994 period. At September 30, 1995 the
Company had a $15,000,000 credit arrangement with its two banks and $8,400,000
had been borrowed. The amount owed to banks at November 9, 1995 was
$9,500,000. The credit line is reviewed semiannually and the credit is based
on estimated net revenues from the Company's proved developed natural gas and
oil reserves. The credit agreement contains restrictive and other covenants
that relate to the operations of the Company. The Company was in compliance
with all restrictions and debt covenants at September 30, 1995.
The Company's current ratio of working capital decreased to .94 to
1.00 at September 30, 1995 from 1.13 to 1.00 at December 31, 1995. The
decrease was due to the reclassification of $1,680,000 of debt on the credit
facility to current from long term.
Capital expenditures were $2,609,000 for the first nine months of 1995
compared to $3,000,000 for the similar period in 1994. In 1995 approximately
$1,433,000 has been expended for the drilling and equipping of exploratory
wells and $214,000 for the acquisition of reserves. The remaining 1995 capital
outlays consist of $962,000 for transportation systems and other expenditures.
During the third quarter of 1995 the Company purchased approximately 15,000
shares of its common stock for $66,000. At September 30, 1995 the Company's
treasury stock consists of 532,000 shares at a cost of $1,191,000 or $2.24 per
share.
Page 9 of 13 pages.
<PAGE> 10
Results of Operations
- ---------------------
Net income for the nine months was $2,316,000 or $.41 per share
compared to $117,000 or $.02 per share in 1994. In the third quarter, net
income improved to $1,939,000 compared to $60,000 in 1994. 1995 includes the
settlement and subsequent sale of the Company's bankruptcy claim against
Columbia. Operating income for the nine months also rose to $3,985,000 in 1995
from $869,000 in 1994.
Revenues from natural gas marketing for the nine months decreased to
$44,818,000 in 1995 from $66,516,000 in 1994. The change was due to a 17%
decrease in volumes sold, combined with an 18% decrease in the average price of
natural gas sold. For the third quarter, revenues decreased to $14,546,000 in
1995 from $17,826,000 in 1994, primarily from lower average prices.
Year-to-date purchases of natural gas declined to $42,576,000 in 1995 from
$64,951,000 in 1994 as a result of the lower volumes purchased combined with a
21% decrease in the average price paid for natural gas supplies. Costs
decreased to $13,686,000 in the third quarter from $17,412,000 in 1994 due to
lower supply prices. As a result of these factors, the year-to-date operating
income from gas marketing activities improved by $677,000 to $2,242,000 in 1995
from $1,565,000 in 1994. In the current quarter, operating income increased to
$860,000 from $414,000 in 1994.
Natural gas and oil production revenues for the nine months increased
by $5,398,000 to $13,783,000 in 1995 from $8,385,000 in 1994. 1995 includes
$4,186,000 related to the Company's settlement and subsequent sale of its
bankruptcy claim against Columbia. The remaining change in year-to-date
revenues was due to increased production, offset, in part by lower sales
prices. Revenues increased by $1,788,000 as a result of greater production and
net decreases in average prices reduced revenues by $576,000. The weighted
average sales price of natural gas decreased to $2.24 per MCF in 1995 from
$2.58 in 1994. The average price of oil improved to $16.76 in 1995 from $15.83
in 1994. For the third quarter of 1995, revenues increased by $3,985,000 to
$6,919,000 from $2,934,000 in 1994. The 1995 quarter includes the sale of the
settlement from Columbia. The remaining change in revenues was primarily due
to lower prices for natural gas. Depreciation, depletion and amortization of
natural gas and oil properties increased to $3,124,000 in 1995 from $2,433,000
in the prior year. Third quarter expenses rose to $1,016,000 from $828,000 in
1994. The increase was due to greater amortization for exploratory wells
combined with higher amortization for older wells. Production costs for the
nine months increased by 10% to $3,478,000 in 1995 from $3,162,000 due to the
Company's participation in a greater number of wells. The year-to-date
operating income from natural gas and oil sales increased to $7,181,000 in 1995
from $2,790,000 in 1994. For the third quarter, operating income improved to
$4,770,000 compared to $967,000 in 1994.
Well operating, transportation and other revenue includes well
operating and servicing activities, transportation systems and real estate
operations. Year-to-date revenues decreased by $479,000 to $2,324,000 in 1995
from $2,803,000 in 1994. 1995 includes a loss of $187,000 from the sale of the
Company's interest in sixty oil and gas wells in the third quarter of 1995.
The remaining change was primarily due to lower transportation income of
$100,000 from reduced usage on pipeline systems and lower billings of field and
pumping services of $192,000.
Page 10 of 13 pages.
<PAGE> 11
In the third quarter of 1995, revenues decreased to $595,000 from $989,000 in
1994. The change was due to the $187,000 loss incurred from the sale of the
wells explained above combined with reduced billings of operating fees to
uneconomic wells.
Other costs include expenses related to operating and managing
producing wells, maintenance of transportation systems, real estate operations
and support costs for exploratory activities. Costs for the nine months
increased to $4,410,000 in 1995 from $3,320,000 in 1994. Approximately,
$760,000 of the increase was due to greater seismic expenditures and personnel
costs related to the Company's exploratory activities. The remaining increase
was due to higher costs in providing field services to wells. Third quarter
costs increased to $2,009,000 from $1,098,000 in 1994. Exploratory costs
increased by $738,000 due to greater seismic expense in the current quarter and
lower gains from the sale of interests in exploratory prospects. The remaining
change was due to higher personnel costs of maintaining wells.
Revenues from drilling and completion activities for the nine months
increased to $2,467,000 in 1995 from $1,842,000 in 1994. Related drilling
costs rose to $3,212,000 from $1,981,000 in 1994. The increase in revenues and
costs was due to a greater number of exploratory wells drilled in 1995. The
Company incurred operating losses of $745,000 in 1995 and $139,000 in 1994 as a
result of dry hole costs on exploratory wells. In the current quarter, the
losses from exploratory dry holes were $317,000 for 1995 and $132,000 for 1994.
Selling, general and administrative expenses for the nine months
decreased by $223,000 to $2,607,000 in 1995 from $2,830,000 in 1994. 1994
included an uncollectible account of $332,000 from an industrial gas customer.
The remaining change was due to higher personnel costs of $260,000, partially
offset by $68,000 of lower costs for gas marketing activities and $83,000 in
reduced expenses for other administrative areas. Costs in the third quarter
increased to $1,060,000 from $773,000 in the 1994 quarter primarily from higher
personnel costs.
Year-to-date interest expense increased by $177,000 to $1,094,000 in
1995 from $917,000 in 1994 due to higher interest rates, partially offset by
lower debt levels. The weighted average interest rate on the Company's credit
facility increased to 8.97% from 6.96% in 1994. The weighted average debt
level decreased to $12,623,000 in 1995 from $12,858,000 in 1994.
The Company's year-to-date federal income tax expense was $624,000 in
1995 compared to a benefit of $145,000 in 1994. The amounts for both periods
include the tax benefit of percentage depletion that is earned by the Company
during the year.
Page 11 of 13 pages.
<PAGE> 12
PART II OTHER INFORMATION
-------------------------
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Item 1. Legal Proceedings.
- -------------------------------
N/A
Item 2. Changes in Securities.
- -----------------------------------
N/A
Item 3. Defaults Upon Senior Securities.
- ---------------------------------------------
N/A
Item 4. Submission of Matters to a Vote of Security Holders.
- -----------------------------------------------------------------
N/A
Item 5. Other Information.
- -------------------------------
N/A
Item 6. Exhibits and Reports on Form 8-K.
- ----------------------------------------------
N/A
Page 12 of 13 pages.
<PAGE> 13
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLINTON GAS SYSTEMS, INC.
-------------------------
(Registrant)
Date: ____________________ ______________________________________
Jerry D. Jordan, Chairman of the Board
Date: ____________________ ______________________________________
Donald A. Nay, Vice President, Treasurer,
Chief Financial Officer
Page 13 of 13 pages.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,029,000
<SECURITIES> 0
<RECEIVABLES> 11,980,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,693,000
<PP&E> 73,389,000
<DEPRECIATION> 40,399,000
<TOTAL-ASSETS> 47,860,000
<CURRENT-LIABILITIES> 14,554,000
<BONDS> 0
<COMMON> 514,000
0
0
<OTHER-SE> 22,626,000
<TOTAL-LIABILITY-AND-EQUITY> 23,140,000
<SALES> 58,601,000
<TOTAL-REVENUES> 63,392,000
<CGS> 49,178,000
<TOTAL-COSTS> 59,407,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,094,000
<INCOME-PRETAX> 2,940,000
<INCOME-TAX> 624,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,316,000
<EPS-PRIMARY> .410
<EPS-DILUTED> 0
</TABLE>
